10-Q 1 belmar10q.txt BELMAR CAPITAL FUND LLC FORM 10Q 6-30-04 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2004 ------------- [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _____________ Commission File No. 000-32633 --------- Belmar Capital Fund LLC ----------------------- (Exact name of registrant as specified in its charter) Delaware 04-3508106 -------- ---------- (State of organization) (I.R.S. Employer Identification No.) The Eaton Vance Building 255 State Street Boston, Massachusetts 02109 --------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number: 617-482-8260 ------------ None ---- (Former Name, Former Address and Former Fiscal Year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). YES X NO --- --- BELMAR CAPITAL FUND LLC Index to Form 10-Q PART I FINANCIAL INFORMATION Page Item 1. Condensed Consolidated Financial Statements 3 Condensed Consolidated Statements of Assets and Liabilities as of June 30, 2004 (Unaudited) and December 31, 2003 3 Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended June 30, 2004 and 2003 and for the Six Months Ended June 30, 2004 and 2003 4 Condensed Consolidated Statements of Changes in Net Assets for the Six Months Ended June 30, 2004 (Unaudited) and the Year Ended December 31, 2003 6 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2004 and 2003 7 Financial Highlights (Unaudited) for the Six Months Ended June 30, 2004 9 Notes to Condensed Consolidated Financial Statements as of June 30, 2004 (Unaudited) 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 24 Item 4. Controls and Procedures 26 PART II OTHER INFORMATION Item 1. Legal Proceedings 26 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases 26 of Equity Securities Item 3. Defaults Upon Senior Securities 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 5. Other Information 27 Item 6. Exhibits and Reports on Form 8-K 27 SIGNATURES 28 EXHIBIT INDEX 29 2 PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements -------------------------------------------------------------------------------- BELMAR CAPITAL FUND LLC Condensed Consolidated Statements of Assets and Liabilities June 30, 2004 December 31, (Unaudited) 2003 -------------- -------------- Assets: Investment in Belvedere Capital Fund Company LLC (Belvedere Company) $1,962,258,647 $1,966,911,184 Investment in Partnership Preference Units 169,775,665 424,780,443 Investment in other real estate 471,434,428 185,138,810 Short-term investments 35,867,000 16,973,476 -------------- -------------- Total investments $2,639,335,740 $2,593,803,913 Cash 3,009,748 6,605,096 Escrow deposits - restricted 2,801,196 3,817,390 Open interest rate swap agreements, at value 7,338,032 2,090,845 Distributions and interest receivable 760,900 1,960,318 Other assets 4,278,381 3,661,857 -------------- -------------- Total assets $2,657,523,997 $2,611,939,419 -------------- -------------- Liabilities: Loan payable - Credit Facility $ 335,000,000 $ 513,000,000 Mortgages payable 402,843,443 161,157,192 Payable for Fund Shares redeemed - 1,361,403 Distributions payable to minority shareholders - 16,800 Swap interest payable 271,143 242,283 Security deposits 882,048 744,420 Notes payable to minority shareholder 565,972 565,972 Accrued expenses: Interest expense 2,369,999 1,423,780 Property taxes 1,869,112 3,281,589 Other expenses and liabilities 3,160,674 1,586,790 Minority interests in controlled subsidiaries 6,471,523 7,947,333 -------------- -------------- Total liabilities $ 753,433,914 $ 691,327,562 -------------- -------------- Net assets $1,904,090,083 $1,920,611,857 -------------- -------------- Shareholders' Capital $1,904,090,083 $1,920,611,857 -------------- -------------- Shares outstanding 21,571,157 22,261,334 -------------- -------------- Net asset value and redemption price per Share $ 88.27 $ 86.28 -------------- -------------- See notes to unaudited condensed consolidated financial statements 3 BELMAR CAPITAL FUND LLC Condensed Consolidated Statements of Operations (Unaudited)

See notes to unaudited condensed consolidated financial statements 4 BELMAR CAPITAL FUND LLC Condensed Consolidated Statements of Operations (Unaudited) (Continued)

(1) Amounts represent periodic payments made in connection with interest rate swap agreements. (Note 5) See notes to unaudited condensed consolidated financial statements 5 BELMAR CAPITAL FUND LLC Condensed Consolidated Statements of Changes in Net Assets Six Months Ended Year Ended June 30, 2004 December 31, (Unaudited) 2003 -------------- --------------- Increase (Decrease) in Net Assets: Net investment income $ 13,493,568 $ 43,724,019 Net realized gain from investment transactions, foreign currency transactions and interest rate swap agreements 41,672,007 5,911,089 Net change in unrealized appreciation (depreciation) of investments, foreign currency and interest rate swap agreements 14,049,352 362,154,142 -------------- -------------- Net increase in net assets from operations $ 69,214,927 $ 411,789,250 -------------- -------------- Transactions in Fund Shares - Net asset value of Fund Shares issued to Shareholders in payment of distributions declared $ 10,101,552 $ 18,603,373 Net asset value of Fund Shares redeemed (70,251,565) (90,690,145) -------------- -------------- Net decrease in net assets from Fund Share transactions $ (60,150,013) $ (72,086,772) -------------- -------------- Distributions - Distributions to Shareholders $ (25,586,688) $ (39,320,426) -------------- -------------- Total distributions $ (25,586,688) $ (39,320,426) -------------- -------------- Net (decrease) increase in net assets $ (16,521,774) $ 300,382,052 Net assets: At beginning of period $1,920,611,857 $1,620,229,805 -------------- -------------- At end of period $1,904,090,083 $1,920,611,857 ============== ============== See notes to unaudited condensed consolidated financial statements 6 BELMAR CAPITAL FUND LLC Condensed Consolidated Statements of Cash Flows (Unaudited)

See notes to unaudited condensed consolidated financial statements 7 BELMAR CAPITAL FUND LLC Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)

See notes to unaudited condensed consolidated financial statements 8 BELMAR CAPITAL FUND LLC as of June 30, 2004 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FINANCIAL HIGHLIGHTS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2004 -------------------------------------------------------------------------------- Net asset value - Beginning of period $86.280 -------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS -------------------------------------------------------------------------------- Net investment income(6) $ 0.614 -------------------------------------------------------------------------------- Net realized and unrealized gain 2.526 -------------------------------------------------------------------------------- TOTAL INCOME FROM OPERATIONS $ 3.140 -------------------------------------------------------------------------------- DISTRIBUTIONS -------------------------------------------------------------------------------- Distributions to Shareholders $(1.150) -------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS $(1.150) -------------------------------------------------------------------------------- NET ASSET VALUE - END OF PERIOD $88.270 -------------------------------------------------------------------------------- TOTAL RETURN(1) 3.68% -------------------------------------------------------------------------------- As a Percentage As a Percentage of Average Net of Average Gross RATIOS Assets(5) Assets(2)(5) -------------------------------------------------------------------------------- Expenses of Consolidated Real Property Subsidiaries Interest and other borrowing costs(7) 1.43%(9) 1.02%(9) Operating expenses(7) 0.94%(9) 0.67%(9) Belmar Capital Fund LLC Expenses Interest and other borrowing costs(4)(8) 0.31%(9) 0.22%(9) Investment advisory and administrative fees, servicing fees and other Fund operating expenses(3)(4) 1.17%(9) 0.83%(9) --------------------------------- Total expenses 3.85%(9) 2.74%(9) Net investment income 1.42%(9) 1.01%(9) -------------------------------------------------------------------------------- SUPPLEMENTAL DATA -------------------------------------------------------------------------------- Net assets, end of period (000's omitted) $1,904,090 Portfolio turnover of Tax-Managed Growth Portfolio (the Portfolio) 1.73% -------------------------------------------------------------------------------- (1) Returns are calculated by determining the percentage change in net asset value with all distributions reinvested. Total return is not computed on an annualized basis. (2) Average Gross Assets is defined as the average daily amount of all assets of Belmar Capital Fund LLC (Belmar Capital) (including Belmar Capital's interest in Belvedere Capital Fund Company LLC (Belvedere Company) and Belmar Capital's ratable share of the assets of its directly and indirectly controlled subsidiaries), without reduction by any liabilities. For this purpose, the assets of Belmar Realty Corporation's (Belmar Realty) controlled subsidiaries are reduced by the proportionate interests therein of investors other than Belmar Realty. (3) Includes Belmar Capital's share of Belvedere Company's allocated expenses, including those expenses allocated from the Portfolio. (4) Includes the expenses of Belmar Capital and Belmar Realty. Does not include expenses of the real estate subsidiaries majority-owned by Belmar Realty. (5) For the purpose of calculating ratios, the income and expenses of Belmar Realty's controlled subsidiaries are reduced by the proportionate interests therein of investors other than Belmar Realty. (6) Calculated using average shares outstanding. (7) Includes Belmar Realty's proportional share of expenses incurred by its majority-owned subsidiaries. (8) Ratios do not include interest incurred in connection with the interest rate swap agreements. Had such amounts been included, ratios would be higher. (9) Annualized. See notes to unaudited condensed consolidated financial statements 9 BELMAR CAPITAL FUND LLC as of June 30, 2004 Notes To Condensed Consolidated Financial Statements (Unaudited) 1 Organization and Basis of Presentation The condensed consolidated interim financial statements of Belmar Capital Fund LLC (Belmar Capital) and its subsidiaries (collectively, the Fund) have been prepared, without audit, in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations, cash flows and financial highlights as of the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the financial statements and the notes thereto included in the Fund's latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the full fiscal year. The balance sheet at December 31, 2003 and the statement of changes in net assets for the year then ended have been derived from the December 31, 2003 audited financial statements but do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements as permitted by the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain amounts in the prior periods' condensed consolidated financial statements have been reclassified to conform with the current period presentation. During the quarter ended June 30, 2004, Belmar Realty Corporation (Belmar Realty) made indirect investments in real property through two newly established controlled subsidiaries, Brazos Property Trust (Brazos) and Cimmaron Property Trust (Cimmaron), as described below. The consolidated financial statements include the accounts of Brazos and Cimmaron and all material intercompany accounts and transactions have been eliminated. Subsidiaries- Brazos- On May 3, 2004, Belmar Realty entered into an agreement to establish and acquire a majority interest in a controlled subsidiary, Brazos. On June 30, 2004, Brazos acquired a majority interest in four industrial properties located in two states (Tennessee and North Carolina). On August 4, 2004, Brazos acquired an additional nineteen industrial properties located in six states (Florida, Indiana, New Jersey, Ohio, Pennsylvania and South Carolina). Belmar Realty owns 100% of the Class A Units of Brazos, representing 60% of the voting interests in Brazos and a minority shareholder (the Brazos Minority Shareholder) owns 100% of the Class B units, representing 40% of the voting interests in Brazos. The Class B equity interest is recorded as a minority interest on the Consolidated Statements of Assets and Liabilities. The primary distinctions between the two classes of shares are the distribution priority and voting rights. Belmar Realty has priority in distributions and has greater voting rights than the holder of the Class B units. From and after August 4, 2014, either Belmar Realty or the Brazos Minority Shareholder may cause a liquidation of Brazos and, if Belmar Realty makes that election, the Brazos Minority Shareholder has the right either to purchase the shares of Brazos owned by Belmar Realty or to acquire the assets of Brazos, in either case at a price determined through an appraisal of the assets of Brazos. 10 Cimmaron- On May 3, 2004, Belmar Realty entered into an agreement to establish and acquire a majority interest in a controlled subsidiary, Cimmaron. On June 30, 2004, Cimmaron acquired a majority interest in four industrial properties located in four states (Tennessee, Georgia, Texas and Ohio). On August 4, 2004, Cimmaron acquired an additional twenty industrial properties located in five states (Florida, New Jersey, Ohio, Pennsylvania and South Carolina). Belmar Realty owns 100% of the Class A Units of Cimmaron, representing 60% of the voting interests in Cimmaron and a minority shareholder (the Cimmaron Minority Shareholder) owns 100% of the Class B units, representing 40% of the voting interests in Cimmaron. The Class B equity interest is recorded as a minority interest on the Consolidated Statements of Assets and Liabilities. The primary distinctions between the two classes of shares are the distribution priority and voting rights. Belmar Realty has priority in distributions and has greater voting rights than the holder of the Class B units. From and after August 4, 2014, either Belmar Realty or the Cimmaron Minority Shareholder may cause a liquidation of Cimmaron and, if Belmar Realty makes that election, the Cimmaron Minority Shareholder has the right either to purchase the shares of Cimmaron owned by Belmar Realty or to acquire the assets of Cimmaron, in either case at a price determined through an appraisal of the assets of Cimmaron. 2 Estate Freeze Shareholders in Belmar Capital are entitled to restructure their Fund Share interests under what is termed an Estate Freeze Election. Under this election, Fund Shares are divided into Preferred Shares and Common Shares. Preferred Shares have a preferential right over the corresponding Common Shares equal to (i) 95% of the original capital contribution made in respect of the undivided Shares from which the Preferred Shares and Common Shares were derived, plus (ii) an annuity priority return equal to 8.5% of the Preferred Shares' preferential interest in the original capital contribution of the undivided Fund Shares. The associated Common Shares are entitled to the remaining 5% of the original capital contribution in respect of the undivided Shares, plus any returns thereon in excess of the fixed annual priority of the Preferred Shares. At June 30, 2004 and December 31, 2003, the Preferred Shares were valued at $88.27 and $86.28, respectively, and the Common Shares had no value. The existence of restructured Fund Shares does not adversely affect Shareholders who do not make an election nor do the restructured Fund Shares have preferential rights to Fund Shares that have not been restructured. Shareholders who subdivide Fund Shares under this election sacrifice certain rights and privileges that they would otherwise have with respect to the Fund Shares so divided, including redemption rights and voting and consent rights. Upon the twentieth anniversary of the issuance of the associated undivided Fund Shares to the original holders thereof, Preferred and Common Shares will automatically convert into full and fractional undivided Fund Shares. 3 Investment Transactions The following table summarizes the Fund's investment transactions for the six months ended June 30, 2004 and June 30, 2003: Six Months Ended Six Months Ended Investment Transaction June 30, 2004 June 30, 2003 -------------------------------------------------------------------------------- Increases in investment in Belvedere Company $ - $ 10,000,000 Decreases in investment in Belvedere Company $ 70,073,877 $ 27,974,742 Acquisition of other real property(1) $ 40,257,119 $ - Sales of Partnership Preference Units(2) $ 253,183,994 $ 13,994,100 -------------------------------------------------------------------------------- (1) In January 2004, Belmar Realty purchased an indirect investment in real property through a controlled subsidiary, Bel Stamford Investors, LLC (Bel Stamford). At the date of the transaction, the value of the real property was $242,750,000. The real property is financed through a mortgage loan assumed at acquisition. The mortgage loan balance assumed at the date of the transaction was $229,674,914 and accrues interest at a fixed rate of 6% through the stated maturity date, October 11, 2016. On June 30, 2004, Belmar Realty purchased an indirect investment in real property through two controlled subsidiaries, Brazos and Cimmaron as described below. At the date of the transaction, the value of Belmar Realty's interest in its real property investments in Brazos and Cimmaron was $7,793,938 and $16,412,031, respectively. 11 (2) Sales of Partnership Preference Units for the six months ended June 30, 2004 and 2003 include Partnership Preference Units sold to other investment funds advised by Boston Management and Research for which a gain of $28,421,981 and $638,700 was recognized, respectively. On May 3, 2004, Belmar Realty entered into an agreement to establish and acquire a majority interest in two controlled subsidiaries, Brazos and Cimmaron. On June 30, 2004, Brazos and Cimmaron each acquired a majority interest in four separate industrial properties. The seller retained a minority interest in the properties and an affiliate thereof manages the properties. When Brazos and Cimmaron acquired the real estate investments, a portion of the real estate's purchase price was allocated to the estimated fair value of in-place leases in accordance with Statement of Financial Accounting Standards 141. At June 30, 2004, $128,797 and $647,636, respectively, of the real estate investment balance represents the estimated fair value of favorable in-place leases at acquisition. The properties are leased under fixed-term operating leases on a long-term basis. At June 30, 2004, the minimum lease payments expected to be received by Brazos and Cimmaron on leases with lease periods greater than one year are as follows: Twelve Months Ending June 30, Amount ----------------------------------------- 2005 $ 3,853,140 2006 3,268,512 2007 2,415,316 2008 1,925,975 2009 1,807,375 Thereafter 3,086,058 ------------ $16,356,376 ============ On August 4, 2004, the Fund made additional investments in Brazos and Cimmaron of $297,615,308 and $141,086,904, respectively. Brazos and Cimmaron concurrently acquired a majority interest in an additional nineteen and twenty industrial properties, respectively. An affiliate of the Brazos Minority Shareholder and Cimmaron Minority Shareholder manages the properties. All of the Brazos and Cimmaron properties are leased under fixed-term operating leases on a long-term basis. In May 2004, Bel Alliance Apartments, LLC (Bel Apartments), a controlled subsidiary of Belmar Realty, agreed to sell all of its multifamily residential properties to an affiliate of the Bel Apartments minority shareholder (Affiliate). According to the agreement, Bel Apartments is expected to receive net proceeds of $23,541,068 as consideration for all of its interest in the multifamily properties and expects not to retain any contingent liabilities associated with the mortgage debt secured by the properties or other liabilities. Concurrent with this sale, Belmar Realty has agreed to buy the outstanding minority interest in Bel Apartments for a nominal amount. Although there is no assurance that the transaction will be consummated, the transaction is expected to close by the end of September 2004. The Fund had an increase in net unrealized appreciation of $5,298,371 for the quarter ended June 30, 2004 as a result of the terms of the agreement. 4 Indirect Investment in the Portfolio The following table summarizes the Fund's investment in Tax-Managed Growth Portfolio (the Portfolio) through Belvedere Capital Fund Company LLC (Belvedere Company), for the six months ended June 30, 2004 and June 30, 2003, including allocations of income, expenses and net realized and unrealized gains (losses) for the respective periods then ended: 12

(1) As of June 30, 2004 and 2003, the value of Belvedere Company's interest in the Portfolio represents 64.7% and 61.7% of the Portfolio's net assets, respectively. (2) As of June 30, 2004 and 2003, the Fund's investment in Belvedere Company represents 16.7% and 18.3% of Belvedere Company's net assets, respectively. A summary of the Portfolio's Statement of Assets and Liabilities at June 30, 2004, December 31, 2003 and June 30, 2003 and its operations for the six months ended June 30, 2004, for the year ended December 31, 2003 and for the six months ended June 30, 2003 follows:

5 Interest Rate Swap Agreements Belmar Capital has entered into interest rate swap agreements with Merrill Lynch Capital Services, Inc. in connection with its real estate investments and the associated borrowings. Under such agreements, Belmar Capital has agreed to make periodic payments at fixed rates in exchange for payments at floating rates. The notional or contractual amounts of these instruments may not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these investments is meaningful only when considered in conjunction with all related assets, liabilities and agreements. Interest rate swap agreements open at June 30, 2004 and December 31, 2003 are listed below. 13

* On May 3, 2004, Belmar Capital entered into a forward interest rate swap agreement with Merrill Lynch Capital Services, Inc. in anticipation of its future investment in controlled subsidiaries Brazos and Cimmaron for the purpose of hedging the interest rate of substantially all of the expected fixed-rate mortgage financing of the real property over the expected 8-year term. Such agreement was terminated in July 2004 and the fund realized a loss of $2,437,256 upon termination. ** Agreement was terminated on the Initial Optional Termination Date. 6 Debt Mortgages- In connection with the acquisition of real properties on June 30, 2004, Brazos assumed an existing mortgage note with a principal balance of $14,454,582. The mortgage note, which bears interest at a fixed rate of 6.29% per annum, is secured by the properties and is generally without recourse to the other assets of Belmar Capital and Belmar Realty. The value of the rental property securing the mortgage is $24,106,308. Principal and interest payments are due monthly with a balloon payment of $12,421,558 due on January 1, 2013. Principal payments due under the mortgage note for the years subsequent to June 30, 2004 are as follows: 2005 $ 187,828 2006 199,989 2007 212,937 2008 226,724 2009 241,403 Thereafter 13,385,701 ----------- $14,454,582 =========== The estimated market value of the mortgage note payable is approximately $14,900,000 at June 30, 2004. The mortgage note payable cannot be prepaid or otherwise disposed of without incurring a substantial prepayment penalty or without the sale of the rental properties financed by the mortgage note payable. Management generally has no current plans to prepay or otherwise dispose of the mortgage note payable or sell the related rental property prior to the maturity date. The market value of the mortgage is based on estimates using discounted cash flow analysis and currently prevailing rates. Considerable judgment is necessary in interpreting market data to develop estimates of market value. The use of different assumptions or estimation methodologies may have a material effect on the estimated market value. Rental property held by Belmar Realty's controlled subsidiaries, Bel Apartments and Bel Stamford, is financed through mortgages issued to the controlled subsidiaries. The mortgages are secured by a rental property or properties. The mortgages are generally without recourse to Belmar Capital and Belmar Realty. The mortgage debt obligation of Bel Stamford is generally without recourse to Belmar Capital, Belmar Realty and Shareholders. The mortgage agreements relating to the rental properties held by Bel Apartments require certain covenants be met, including a covenant that trade payables and accrued expenses incurred in the ordinary course of business in the aggregate will not exceed 1% of the outstanding principal balance of the loan. At June 30, 2004, this covenant was not met for certain mortgage agreements, of which the aggregate principal balance at June 30, 2004 totals $20,867,0238 or 5% of the total mortgages outstanding. The mortgage agreements provide for a cure period of 30 days after written notification from the lenders, with a further extension of up to 60 additional days. As of June 30, 2004 the lenders had not provided such notice. It is uncertain as to whether the lenders will seek to enforce the provisions of the mortgage agreements. Bel Apartments may choose not to commit additional equity to cure certain of these technical defaults. If the lenders pursue enforcement and a mutually acceptable arrangement with the lenders cannot be reached, the result could be a foreclosure on some or all of those investment properties that secure such mortgages. However, the Fund's current net investment in Bel Apartments would not be negatively impacted if a foreclosure on some or all of those investment properties that secure such mortgages were to occur, based on the current valuations of the affected properties and the related mortgages. The eventual outcome of this matter cannot be determined at this time. The mortgages are generally without recourse to the other assets of Bel Apartments, Belmar Capital and Belmar Realty. The technical default of certain mortgage agreements does not affect Belmar Capital's liquidity. Credit Facility- In August 2004 additional borrowings under the Credit Facility in the amount of $118,500,000 were used to purchase additional interests in the real estate investments Brazos and Cimmaron, real estate subsidiaries of Belmar Realty. This borrowing accrues interest at a rate of one-month LIBOR plus 0.38% per annum. On August 4, 2004, Brazos and Cimmaron acquired a majority interest in nineteen and twenty industrial properties, respectively (See Note 3). To finance the Fund's investments in the properties acquired by Brazos and Cimmaron, Belmar 14 Capital increased the amount available under its credit arrangement with Merrill Lynch Mortgage Capital, Inc. (Merrill Lynch) by $213,500,000 under a temporary arrangement (the Temporary Arrangement) and borrowed that amount. The borrowing under the Temporary Arrangement accrues interest at a rate of one-month LIBOR plus 0.90% and is for a term of sixty days, subject to a thirty-day extension. Any unused amount of the increase pertaining to the Temporary Arrangement is subject to a commitment fee of 0.10% per annum. The assets of Belmar Capital, excluding the assets of Bel Apartments, Bel Stamford, Brazos and Cimmaron, secure all borrowings under the credit arrangement with Merrill Lynch. Brazos and Cimmaron expect to obtain first mortgage financing for their investments in real properties in the third and fourth quarters of 2004. The proceeds from such first mortgage financing will be used to repay Belmar Capital, and accordingly, Belmar Capital will repay its borrowings under the Temporary Arrangement and a portion of other borrowings under the Credit Facility. 7 Segment Information Belmar Capital pursues its investment objective primarily by investing indirectly in the Portfolio through Belvedere Company. The Portfolio is a diversified investment company that emphasizes investments in common stocks of domestic and foreign growth companies that are considered to be high in quality and attractive in their long-term investment prospects. Separate from its investment in Belvedere Company, Belmar Capital invests in real estate assets through its subsidiary, Belmar Realty. Belmar Realty invests directly and indirectly in Partnership Preference Units and indirectly in real property through controlled subsidiaries Bel Apartments, Bel Stamford (for the period January 14, 2004 to June 30, 2004), Brazos and Cimmaron (See Note 1). Management services for the real property held by Bel Apartments are provided by an affiliate of its minority shareholder. The management agreement provides for a management fee and allows for reimbursement of payroll and other direct expenses incurred by the manager in conjunction with managing properties. Belmar Realty is currently disputing certain expenditures, allocations and reimbursements by the property manager under the management agreement. Belmar Capital evaluates performance of the reportable segments based on the net increase (decrease) in net assets from operations of the respective segment, which includes net investment income (loss), net realized gain (loss) and unrealized appreciation (depreciation). The accounting policies of the reportable segments are the same as those for the Fund on a consolidated basis. No reportable segments have been aggregated. Reportable information by segment is as follows:

* Belmar Capital invests indirectly in Tax-Managed Growth Portfolio through Belvedere Company. 16 The following tables reconcile the reported segment information to the condensed consolidated financial statements for the periods indicated:

June 30, 2004 December 31, 2003 ----------------------------------------- Net assets: Net assets of reportable segments $ 1,955,732,441 $ 1,953,187,951 Unallocated cash(2) 1,567,455 5,019,018 Short-term investments(2) 35,867,000 16,973,476 Loan payable - Credit Facility(3) (88,878,476) (54,357,683) Other liabilities (198,337) (210,905) ----------------------------------------- Total net assets $ 1,904,090,083 $ 1,920,611,857 ----------------------------------------- (1) Unallocated amounts represent expenses incurred that pertain to the overall operation of Belmar Capital, and do not pertain to either operating segment. (2) Unallocated cash and short-term investments represent cash and cash equivalents not currently invested in the Portfolio or real estate assets. (3) Unallocated amount of loan payable - Credit Facility primarily represents borrowings on hand to be used for acquiring investments. However, such borrowings have also been used to pay selling commissions, organization expenses and other liquidity needs of the Fund. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information in this report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements typically are identified by use of terms such as "may," "will," "should," "might," "expect," "anticipate," "estimate," and similar words, although some forward-looking statements are expressed differently. The actual results of Belmar Capital Fund LLC (the Fund) could differ materially from those contained in the forward-looking statements due to a number of factors. The Fund undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Factors that could affect the Fund's performance include a decline in the U.S. stock markets or in general economic conditions, adverse developments affecting the real estate industry, or fluctuations in interest rates. The following discussion should be read in conjunction with the Fund's unaudited condensed consolidated financial statements and related notes in Item 1 above. RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2004 COMPARED TO THE QUARTER ENDED JUNE 30, 2003 (a) RESULTS OF OPERATIONS. Increases and decreases from operations in the Fund's net asset value per share are derived from net investment income (or loss) and realized and unrealized gains and losses on investments. The Fund's net investment income (or loss) is determined by subtracting the Fund's total expenses from its investment income and then deducting the minority interest in net income (or loss) of the controlled subsidiaries of Belmar Realty Corporation (Belmar Realty). The Fund's investment income includes the net investment income allocated to the Fund from Belvedere Capital Fund Company LLC (Belvedere Company), rental income from the properties owned by Belmar Realty's controlled subsidiaries, partnership income allocated to the income-producing preferred equity interests in real estate operating partnerships (Partnership Preference Units) owned by Belmar Realty and interest earned on the Fund's short-term investments (if any). The net investment income of Belvedere Company allocated to the Fund includes dividends, interest and expenses allocated to Belvedere Company by Tax-Managed Growth Portfolio (the Portfolio) less the expenses of Belvedere Company allocated to the Fund. The Fund's total expenses include the Fund's investment advisory and administrative fees, distribution and servicing fees, interest expense from mortgages on properties owned by Belmar Realty's controlled subsidiaries, interest expense on the Fund's Credit Facility (described in Item 2(b) below), property management fees, property taxes, insurance, maintenance and other expenses relating to the properties owned by Belmar Realty's controlled subsidiaries, and other miscellaneous expenses. The Fund's realized and unrealized gains and losses are the result of transactions in, or changes in value of, security investments held through the Fund's indirect interest (through Belvedere Company) in the Portfolio, real estate investments held through Belmar Realty, the Fund's interest rate swap agreements and any other direct investments of the Fund, as well as periodic payments made by the Fund pursuant to interest rate swap agreements. Realized and unrealized gains and losses on investments have the most significant impact on the Fund's net asset value per share and result primarily from sales of such investments and changes in their underlying value. The investments of the Portfolio consist primarily of common stocks of domestic and foreign growth companies that are considered to be high in quality and attractive in their long-term investment prospects. Because the securities holdings of the Portfolio are broadly diversified, the performance of the Portfolio cannot be attributed to one particular stock or one particular industry or market sector. The performance of the Portfolio and the Fund are substantially influenced by the overall performance of the U.S. stock market, as well as by the relative performance versus the overall market of specific stocks and classes of stocks in which the Portfolio maintains large positions. PERFORMANCE OF THE FUND.(1) The Fund's investment objective is to achieve long-term, after-tax returns for Shareholders. Eaton Vance Management (Eaton Vance), as the Fund's manager, measures the Fund's success in achieving its objective based on the investment returns of the Fund, using the Standard & Poor's 500 Composite Index (the S&P 500) as the Fund's primary performance benchmark. The S&P 500 is a broad-based unmanaged index of common stocks widely used as a measure of U.S. stock market performance. Eaton Vance's primary focus in pursuing total return is on the Fund's common stock portfolio, which consists of its indirect interest in the Portfolio. In measuring the performance of the ----------- (1) Total returns are historical and are calculated by determining the percentage change in net asset value with all distributions reinvested. Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. The Portfolio's total return for the period reflects the total return of another fund that invests in the Portfolio, adjusted for certain fund expenses. Performance is for the stated time period only and is not annualized; due to market volatility, the Fund's current performance may be lower or higher. The performance of the Fund and the Portfolio is compared to that of their benchmark, the S&P 500. It is not possible to invest directly in an Index. 18 Fund's real estate investments held through Belmar Realty, Eaton Vance considers whether, through current returns and changes in valuation, the real estate investments achieve returns that over the long-term exceed the cost of the borrowing incurred to acquire such investments and thereby add to Fund returns. The Fund has entered into interest rate swap agreements to fix the cost of borrowings under the Credit Facility used to acquire Belmar Realty's equity equity in its real estate investments and to mitigate in part the impact of interest rate changes on the Fund's net asset value. The Fund's total return was 1.85% for the quarter ended June 30, 2004. This return reflects an increase in the Fund's net asset value per share from $86.67 to $88.27 during the period. For comparison, the S&P 500 had a total return of 1.72% over the same period. The performance of the Fund exceeded that of the Portfolio by approximately 0.54% during the period. Last year, the Fund had a total return performance of 14.08% for the quarter ended June 30, 2003. This return reflected an increase in the Fund's net asset value per share from $65.78 to $75.04 during the period. For comparison, the S&P 500 had a total return of 15.39% over the same period. The performance of the Fund exceeded that of the Portfolio by approximately 0.54% during that period. PERFORMANCE OF THE PORTFOLIO. For the quarter ended June 30, 2004, the Portfolio's total return was 1.31%. This compares to a total return of 1.72% for the S&P 500. In the second quarter, U.S. equity returns were supported by strengthening employment trends, robust manufacturing activity and rising corporate profits. At the same time, uncertainty over the situation in Iraq and the prospect of rising interest rates and inflation weighed on investors and held back returns. During the quarter, growth stocks outperformed value stocks, and small-caps performed better than large-caps and mid-caps. The Portfolio's modest underperformance during the quarter was attributable in part to a relative overweighting of certain weaker performing industry groups, specifically specialty retail and media. In addition, the Portfolio was underweight internet software and communications equipment stocks, which rallied during the period. Concerns about future trends in consumer spending caused the Portfolio to trim its relative overweighting of the discretionary and staples sectors during the quarter. The Portfolio also reduced healthcare and technology investments during the quarter, mainly in the lagging biotech and semi-conductor groups. During the quarter, the Portfolio continued to overweight airfreight and machinery holdings, which contributed positively to the Portfolio's performance. The Portfolio benefited from the strong performance of stocks in the food, staples retailing and commercial bank industries during the quarter, as well as from increased exposure to energy stocks. Material stocks were also solid performers during the quarter and, despite the Portfolio's underweight of the sector versus the S&P 500, the performance of the Portfolio's holdings in the metals and mining group was noteworthy. Valuation and regulatory concern prompted a continued de-emphasis of multi-line utilities and diversified telecom companies. For the quarter ended June 30, 2003, the Portfolio's total return was 13.54% compared to the 15.39% total return for the S&P 500. During the quarter, the S&P 500 posted its best quarterly return in five years, with favorable fiscal and monetary policy developments, progress in Iraq and signs of an improving economy contributing to a stronger market. The Portfolio's relative underperformance was attributable primarily to its lower exposure to higher-volatility, lower-quality stocks that were the strongest performers in the sharp market rally. PERFORMANCE OF REAL ESTATE INVESTMENTS. The Fund's real estate investments are held through Belmar Realty. As of June 30, 2004, real estate investments consisted primarily of a portfolio of Partnership Preference Units issued by partnerships affiliated with publicly traded real estate investment trusts (REITs), and four subsidiary companies: Bel Alliance Apartments, LLC (Bel Apartments), Bel Stamford Investors, LLC (Bel Stamford), Brazos Property Trust (Brazos) and Cimmaron Property Trust (Cimmaron). Bel Apartments, Brazos and Cimmaron are real estate joint ventures that operate multifamily (in the case of Bel Apartments) and industrial (in the case of Brazos and Cimmaron) properties (Real Estate Joint Ventures). Bel Stamford owns a property subject to a long-term triple net lease (Net Leased Property). As of June 30, 2004, the estimated fair value of the Fund's real estate investments represented 24.1% of the Fund's total assets on a consolidated basis. Adjusting for the minority interests in Bel Apartments, Brazos and Cimmaron, the Fund's real estate investments represented 33.1% of the Fund's net assets as of June 30, 2004. During the quarter ended June 30, 2004, Belmar Realty sold Partnership Preference Units totaling approximately $39.5 million (including sales to other investment funds advised by Boston Management), recognizing gains of approximately $6.1 million on the transactions. At June 30, 2004, the estimated fair value of Belmar Realty's Partnership Preference Units totaled $169.8 million compared to $564.5 million at June 30, 2003, a net decrease of $394.7 million or 70%. While the net decrease in value was principally due to fewer Partnership Preference Units held at June 30, 2004, the net decrease also reflects lower per unit values of the Partnership Preference Units held at June 30, 2004 due principally to their lower average coupon rates. In the current low interest rate environment, many issuers have been redeeming Partnership Preference Units as call protections expire or restructuring the terms of outstanding Partnership Preference Units in advance of their call dates. As a result, many of the higher-yielding Partnership Preference Units held by Belmar 19 Realty during the quarter ended June 30, 2003 were no longer held at June 30, 2004. Boston Management expects this trend to continue through 2004. The Fund saw unrealized depreciation of the estimated fair value in its Partnership Preference Units of approximately $10.8 million during the quarter ended June 30, 2004 compared to approximately $11.5 million of unrealized appreciation during the quarter ended June 30, 2003. The net unrealized depreciation of $10.8 million in the second quarter of 2004 consisted of approximately $3.3 million of unrealized depreciation resulting from decreases in per unit values of the Partnership Preference Units held by Belmar Realty at June 30, 2004 and approximately $7.5 million of unrealized depreciation resulting from the recharacterization of previously recorded unrealized appreciation to realized gains due to sales of Partnership Preference Units during the quarter ended June 30, 2004. During the quarter ended June 30, 2004, Partnership Preference Unit values were negatively affected by the rising trend in U.S. interest rates, partly offset by tighter spreads for credit-sensitive income securities, including real estate-related securities. In a rising interest rate environment, values of Partnership Preference Units generally can be expected to decline. During the quarter ended June 30, 2003, Partnership Preference Units generally benefited from declining interest rates and tightening spreads in credit-sensitive income securities, particularly in real estate-related securities. Distributions from Partnership Preference Units for the quarter ended June 30, 2004 totaled $3.8 million compared to $12.2 million for the quarter ended June 30, 2003, a decrease of $8.4 million or 69%. The decrease was principally due to fewer Partnership Preference Units held on average, as well as to lower average distribution rates on Partnership Preference Units held during the quarter ended June 30, 2004. On June 30, 2004, Belmar Realty's newly formed subsidiaries Brazos and Cimmaron acquired, as their initial investments, majority interests in certain industrial properties from ProLogis, a publicly-traded REIT, for approximately $7.8 million and $16.4 million, respectively. ProLogis retained minority interests in the properties. In May 2004, Belmar Realty entered into agreements with ProLogis to form ProLogis Six Rivers Limited Partnership (Six Rivers) (in association with subsidiaries of other investment funds advised by Boston Management) and to merge Six Rivers with Keystone Property Trust, a publicly-traded REIT (Keystone). The transactions contemplated by these agreements were consummated on August 4, 2004. As a result of the transactions, Brazos and Cimmaron acquired partnership interests in Six Rivers. In addition, ProLogis acquired minority interests in Brazos and Cimmaron. Through their interests in Six Rivers, Brazos and Cimmaron own a majority of the economic interests in certain industrial properties acquired through the merger of Six Rivers and Keystone for approximately $372.0 million and $176.4 million, respectively. As part of the transaction on June 30, 2004, Brazos assumed first mortgage debt of approximately $14.5 million secured by certain properties. It is anticipated that in the third and fourth quarter of 2004 each of Brazos and Cimmaron will obtain first mortgage financing secured by their respective properties equal to approximately 60-65% of the property value. The Fund has provided interim financing for Brazos and Cimmaron, as described below in "Liquidity and Capital Resources." Rental income from real estate operations increased to approximately $13.0 million for the quarter ended June 30, 2004 from approximately $8.7 million for the quarter ended June 30, 2003, a net increase of $4.3 million or 49%. This net increase was due to the acquisition of Bel Stamford in January 2004. The net increase was partially offset by lower rental revenue for Bel Apartments. Bel Apartment's rental income declined to approximately $8.4 million for the quarter ended June 30, 2004 from approximately $8.7 million for the quarter ended June 30, 2003, a decrease of $0.3 million or 3%. The decline was principally due to increased rental concessions and lower occupancy levels at the properties held by Bel Apartments. Belmar Realty does not record property operating expenses for Bel Stamford, as such expenses are assumed by the tenant under the terms of the lease agreement. Property operating expenses for Bel Apartments were approximately $4.4 million for the quarter ended June 30, 2004 compared to approximately $4.6 million for the quarter ended June 30, 2003, a net decrease of $0.2 million or 4% (property operating expenses are before certain operating expenses of Belmar Realty of approximately $1.0 million for the quarter ended June 30, 2004 and approximately $1.4 million for the quarter ended June 30, 2003). The decline in property operating expenses was due to a decline in property and maintenance expenses while property tax and insurance expenses remained unchanged. The near-term outlook for multifamily property operations continues to be weak. While the recent pick-up in economic and employment growth is expected to lead to improved supply-demand balance in the apartment industry, oversupply conditions continue to exist in most major markets. As a result, Boston Management expects that multifamily real estate operating results in 2004 will continue to be similar to 2003. Because Brazos and Cimmaron held no investments in property until June 30, 2004, they had no significant impact on real estate operations during the quarter then ended. As of August 4, 2004, Brazos and Cimmaron own interests in 23 and 24 20 industrial properties, respectively, which each consist of industrial distribution properties located in eight states. ProLogis, currently the largest REIT specializing in industrial distribution properties, provides day-to-day operating management of these properties. The terms of the Brazos and Cimmaron joint ventures are similar to those of the Bel Apartments joint venture. Belmar Realty's investments in Brazos and Cimmaron will be valued in substantially the same manner as its investment in Bel Apartments and they are subject to similar risks, as well as risks specifically associated with industrial distribution properties (such as changing transportation and logistics patterns and tenant credit). The mortgage financing to be obtained by Brazos and Cimmaron will be secured by the properties owned by each and are expected to be without recourse to Belmar Realty, the Fund or its Shareholders. Pursuant to an agreement between Belmar Realty and ProLogis, Belmar Realty is obligated to make capital contributions to Brazos and Cimmaron if required to fund certain items, such as debt service, insurance or property taxes. In 2004, industrial properties in the United States have experienced increased demand for space after three years of occupancy and rental rate declines in most markets. However, reduced rent levels may continue over the near term as above-market leases mature and space is released at current market rates. As a result, Boston Management expects that improvements in industrial property operating performance will occur over the longer term. At June 30, 2004, the estimated fair value of the real properties indirectly held through Belmar Realty was approximately $471.4 million compared to approximately $190.6 million at June 30, 2003, a net increase of $280.8 million or 147%. The net increase in estimated real property value was principally due to the January 2004 acquisition of Bel Stamford, the properties acquired by Brazos and Cimmaron on June 30, 2004 and the agreement to sell certain properties as described below. The Fund saw unrealized appreciation in the estimated fair value of its other real estate investments (which includes Bel Apartments, Brazos, Cimmaron and Bel Stamford) of approximately $5.1 million during the quarter ended June 30, 2004 compared to unrealized depreciation of approximately $10.9 million during the quarter ended June 30, 2003. In May 2004, Bel Apartments agreed to sell all of its multifamily residential properties to an affiliate of the Bel Apartments' minority interest owner. Upon consummation of the transaction, Belmar Realty is expected to receive net proceeds of approximately $23.5 million as consideration for all of its interest in the multifamily residential properties and expects not to retain any contingent liabilities associated with the mortgage debt secured by the properties or other liabilities. Concurrent with this sale, Belmar Realty has agreed to buy the outstanding minority interest in Bel Apartments for a nominal amount. Although there can be no assurance that the transaction will be consummated, it is expected to close by the end of September 2004. Reflecting the anticipated sale, an increase of approximately $5.3 million of unrealized appreciation is reported on the Fund's unaudited financial statements for the quarter ended June 30, 2004 included in Item 1 above. PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the quarter ended June 30, 2004, net realized and unrealized gains on the Fund's interest rate swap agreements totaled approximately $7.8 million, compared to net realized and unrealized losses of approximately $4.2 million for the quarter ended June 30, 2003. Net realized and unrealized gains on swap agreements for the quarter ended June 30, 2004 consisted of $11.0 million of unrealized appreciation due to changes in swap agreement valuations offset by $3.2 million of periodic payments made pursuant to outstanding swap agreements (and classified as net realized losses on interest rate swap agreements). For the quarter ended June 30, 2003, unrealized appreciation of $5.4 million on swap agreement valuation changes was offset by $9.6 million of swap agreement periodic payments. The positive contribution to Fund performance for the quarter ended June 30, 2004 from changes in swap agreement valuations was attributable to an increase in swap rates during the quarter. The positive contribution for the quarter ended June 30, 2003 from changes in swap valuations was due primarily to the exercise of early termination options on a number of swap agreements and the remaining swaps approaching their initial optional termination dates. The appreciation was offset in part by a slight decline in swap rates. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2003 PERFORMANCE OF THE FUND. The Fund's total return was 3.68% for the six months ended June 30, 2004. This return reflects an increase in the Fund's net asset value per share from $86.28 to $88.27 and a distribution of $1.15 per share during the period. For comparison, the S&P 500 had a total return of 3.44% over the same period. The performance of the Fund exceeded that of the Portfolio by approximately 0.23% during the period. Last year, the Fund had a total return performance of 10.00% for the six months ended June 30, 2003. This return reflected an increase in the Fund's net asset value per share from $69.87 to $75.04 and a distribution of $1.70 per share. For comparison, the S&P 500 had a total return of 11.75% over the same period. The performance of the Fund exceeded that of the Portfolio by 1.81% during that period. PERFORMANCE OF THE PORTFOLIO. For the six months ended June 30, 2004, the Portfolio's total return was 3.45%, in line with the 3.44% total return of the S&P 500. In the period, U.S. equity returns were supported by a strengthening economy and rising corporate profits. Geopolitical concerns, higher interest rates and rising inflation were negative factors that held back returns. In the 21 period, small-cap stocks sharply outperformed large-caps and mid-caps, and value stocks performed modestly better than growth stocks. The Portfolio's performance during the first six months of 2004 was driven primarily by its diversified industry exposure and positive stock selection. Concerns about future trends in consumer spending caused the Portfolio to trim its relative overweighting of the discretionary and staples sectors during the period. The Portfolio also decreased positions in healthcare and technology stocks during the period. The underweighting of semiconductor equipment and software industries added to performance. The Portfolio maintained an overweighting of industrials stocks, and benefited from advances in airfreight, machinery and building stocks. While the consumer staples and financials sectors generally did not perform well during the period, the Portfolio's holdings in those sectors were positive contributors to performance. Another positive contributor was the Portfolio's growing exposure to the energy sector. The Portfolio's oil exploration and gas investments benefited from the current supply-demand imbalances and associated energy price increases. The strong performance of the Portfolio's holdings in the cyclical metals and mining industries during the period was also noteworthy. The Portfolio continued to underweight the utilities and telecom sectors. For the six months ended June 30, 2003, the Portfolio's total return was 8.19% compared to an 11.75% total return for the S&P 500. Market performance during the first six months of 2003 was volatile, with war angst, a questionable economic recovery and the SARS outbreak among the concerns weighing on investors toward the beginning of the year. From mid-March through the end of the period, the U.S. markets rallied sharply, with favorable fiscal and monetary policy developments, progress in Iraq and signs of an improving economy contributing to the strength. The Portfolio's relative underperformance during the period was attributable primarily to its lower exposure to higher-volatility, lower-quality stocks that were the strongest performers in the market rally. PERFORMANCE OF REAL ESTATE INVESTMENTS. During the six months ended June 30, 2004, Belmar Realty purchased and sold certain real estate investments. As described below, in January 2004 Belmar Realty acquired Bel Stamford. Belmar Realty's newly formed subsidiaries, Brazos and Cimmaron, each acquired certain industrial properties on June 30, 2004 and on August 4, 2004. In May 2004, Bel Apartments agreed to sell all its real estate assets to an affiliate of the minority interest holder therein. During the six months ended June 30, 2004, Belmar Realty sold (or experienced scheduled redemptions of) Partnership Preference Units totaling approximately $253.2 million (including sales to other investment funds advised by Boston Management), recognizing gains of approximately $36.5 million on the transactions. At June 30, 2004, the estimated fair value of Belmar Realty's Partnership Preference Units totaled $169.8 million compared to $564.5 million at June 30, 2003, a net decrease of $394.7 million or 70%. While the net decrease in value was principally due to fewer Partnership Preference Units held at June 30, 2004, the net decrease also reflects lower per unit values of the Partnership Preference Units held at June 30, 2004 due principally to their lower average coupon rates. In the current low interest rate environment, many issuers have been redeeming Partnership Preference Units as call protections expire or restructuring the terms of outstanding Partnership Preference Units in advance of their call dates. As a result, many of the higher-yielding Partnership Preference Units held by Belmar Realty during the six months ended June 30, 2003 were no longer held at June 30, 2004. Boston Management expects this trend to continue through 2004. The Fund saw unrealized depreciation of the estimated fair value in its Partnership Preference Units of approximately $38.3 million during the six months ended June 30, 2004 compared to approximately $26.3 million of unrealized appreciation during the six months ended June 30, 2003. The net unrealized depreciation of $38.3 million in the first six months of 2004 consisted of approximately $5.5 million of unrealized depreciation resulting from decreases in per unit values of the Partnership Preference Units held by Belmar Realty at June 30, 2004 and approximately $32.8 million of unrealized depreciation resulting from the recharacterization of previously recorded unrealized appreciation to realized gains due to sales of Partnership Preference Units during the six months ended June 30, 2004. During the six months ended June 30, 2004, Partnership Preference Units values were negatively affected by the rising trend in U.S. interest rates, partly offset by tighter spreads for credit-sensitive income securities, including real estate-related securities. In a rising interest rate environment, values of Partnership Preference Units generally can be expected to decline. During the six months ended June 30, 2003, Partnership Preference Units generally benefited from declining interest rates and tightening spreads in credit-sensitive income securities, particularly in real estate-related securities. Distributions from Partnership Preference Units for the six months ended June 30, 2004 totaled $10.2 million compared to $24.6 million for the six months ended June 30, 2003, a decrease of $14.4 million or 59%. The decrease was principally due to fewer Partnership Preference Units held on average and to lower average distribution rates on Partnership Preference Units held during the six months ended June 30, 2004, partially offset by a one-time special distribution from one issuer made in connection with a restructuring of its Partnership Preference Units. 22 In January 2004, Belmar Realty acquired Bel Stamford at a cost of $16.1 million. Bel Stamford holds, subject to certain debt, a commercial office building and attached facilities in Stamford, Connecticut with 682,000 square feet of rentable space that is leased to a single investment grade-quality tenant on a triple net basis pursuant to a non-cancelable, fixed term operating lease expiring in December 2017, subject to renewal options extending thereafter. At the date of the transaction, the value of the real property was $242.8 million. The real property is financed through a mortgage loan assumed at aquistion. The mortgage loan balance assumed at the date of the transaction was $229.7 million. The estimated fair value of the property held through Bel Stamford on June 30, 2004 was $242.8 million. Rental income from real estate operations increased to approximately $25.1 million for the six months ended June 30, 2004 from approximately $17.2 million for the six months ended June 30, 2003, a net increase of $7.9 million or 46%. This net increase was primarily due to the acquisition of Bel Stamford in January 2004. The net increase was partially offset by lower rental revenue for Bel Apartments. Bel Apartment's rental income declined to approximately $16.6 million for the six months ended June 30, 2004 from approximately $17.2 million for the six month ended June 30, 2003, a decrease of $0.6 million or 4%. The decline was principally due to increased rental concessions and lower occupancy levels at the properties held by Bel Apartments. As noted above, Brazos and Cimmaron acquired their initial property investments on June 30, 2004, and thus had no significant impact on real estate operating results for the period. Belmar Realty does not record property operating expenses for Bel Stamford, as such expenses are assumed by the tenant under the terms of the lease agreement. Property operating expenses for Bel Apartments were approximately $8.8 million for the six months ended June 30, 2004 compared to approximately $8.9 million for the six months ended June 30, 2003, a net decrease of $0.1 million or 1% (property operating expenses are before certain operating expenses of Belmar Realty of approximately $2.4 million for the six months ended June 30, 2004 and approximately $2.6 million for the six months ended June 30, 2003). The decline in property operating expenses was due to a decline in property and maintenance expenses while property tax and insurance expenses remained unchanged. The near-term outlook for multifamily property operations continues to be weak. While the recent pick-up in economic and employment growth is expected to lead to improved supply-demand balance in the apartment industry, oversupply conditions continue to exist in most major markets. As a result, Boston Management expects that multifamily real estate operating results in 2004 will continue to be similar to 2003. At June 30, 2004, the estimated fair value of the real properties indirectly held through Belmar Realty was approximately $471.4 million compared to approximately $190.6 million at June 30, 2003, a net increase of $280.8 million or 147%. The net increase in estimated real property value is principally due to the January 2004 acquisition of Bel Stamford, the properties acquired by Brazos and Cimmaron on June 30, 2004 and the agreement to sell Bel Apartments' assets. The Fund saw unrealized appreciation in the estimated fair value of its other real estate investments (which includes Bel Apartments, Brazos, Cimmaron and Bel Stamford) of approximately $1.7 million during the six months ended June 30, 2004 compared to unrealized depreciation of approximately $12.3 million during the six months ended June 30, 2003. Net unrealized appreciation of $1.7 million for the six months ended June 30, 2004 is principally due to appreciation in the value of Bel Apartments as a result of the agreement to sell its real estate assets as discussed above. PERFORMANCE OF INTEREST RATE SWAP AGREEMENTS. For the six months ended June 30, 2004, net realized and unrealized losses on the Fund's interest rate swap agreements totaled approximately $1.0 million, compared to net realized and unrealized losses of approximately $6.0 million for the six months ended June 30, 2003. Net realized and unrealized losses on swap agreements for the six months ended June 30, 2004 consisted of $5.3 million of unrealized appreciation due to changes in swap agreement valuations offset by $6.3 million of periodic payments made pursuant to outstanding swap agreements (and classified as net realized losses on interest rate swap agreements). For the six months ended June 30, 2003, unrealized appreciation of $13.2 million on swap agreement valuation changes was offset by $19.2 million of swap agreement periodic payments. The positive contribution to Fund performance for the six months ended June 30, 2004 from changes in swap agreement valuations was attributable to an increase in swap rates during the period. The positive contribution to Fund performance for the six months ended June 30, 2003 from changes in swap valuations was primarily due to the exercise of early termination options on a number of swap agreements and the remaining swaps approaching their initial optional termination dates. Swap rates declined during the six months ended June 30, 2003, offsetting some of the appreciation from approaching early termination dates. (b) LIQUIDITY AND CAPITAL RESOURCES. OUTSTANDING BORROWINGS. The Fund has entered into credit arrangements with DrKW Holdings, Inc. and Merrill Lynch Mortgage Capital, Inc. (collectively, the Credit Facility) primarily to finance the Fund's equity in its real estate investments and will continue to use the Credit Facility for such purpose in the future. The Credit Facility may also be used for other purposes, including any 23 short-term liquidity needs of the Fund. In the future, the Fund may increase the size of the Credit Facility (subject to lender consent) and the amount of outstanding borrowings thereunder. As of June 30, 2004, the Fund had outstanding borrowings of $335.0 million and unused loan commitments of $118.5 million under the Credit Facility. In August 2004, the Fund made borrowings under its credit arrangement with Merrill Lynch Mortgage Capital, Inc. (MLMC) in the amount of $118.5 million. At that time, the Fund also temporarily increased the amount available under its credit arrangement with MLMC by $213.5 million and borrowed that amount. The Fund used the total proceeds from these borrowings to finance the acquisitions by Brazos and Cimmaron of interests in certain industrial properties. The additional $213.5 million of borrowings is at a rate of LIBOR plus 0.90% and is for a period of up to sixty-days (subject to a 30-day extension, if needed). Brazos and Cimmaron expect to obtain first mortgage financing for its properties in the third and fourth quarters of 2004, the proceeds from which will be used to repay borrowings obtained by the Fund in August 2004 to facilitate the Brazos and Cimmaron acquisitions. The Fund has entered into interest rate swap agreements with respect to its real estate investments and associated borrowings. Pursuant to these agreements, the Fund makes periodic payments to the counterparty at predetermined fixed rates, in exchange for floating-rate payments at a predetermined spread plus one-month LIBOR. During the terms of the outstanding interest rate swap agreements, changes in the underlying values of the agreements are recorded as unrealized appreciation or depreciation. As of June 30, 2004, the unrealized appreciation related to the interest rate swap agreements was approximately $7.3 million. As of June 30, 2003, the unrealized depreciation related to the interest rate swap agreements was approximately $33.8 million. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. INTEREST RATE RISK. The Fund's primary exposure to interest rate risk arises from its real estate investments that are financed by the Fund with floating rate borrowings under the Fund's Credit Facility and by fixed-rate secured mortgage debt obligations of the Real Estate Joint Ventures and Net Leased Property. Partnership Preference Units are fixed rate instruments whose values will generally decrease when interest rates rise and increase when interest rates fall. The interest rates on borrowings under the Fund's Credit Facility are reset at regular intervals based on one-month LIBOR. The Fund has entered into interest rate swap agreements to fix the cost of its borrowings under the Credit Facility used to acquire Belmar Realty's equity in its real estate investments and to mitigate in part the impact of interest rate changes on the Fund's net asset value. Under the terms of the interest rate swap agreements, the Fund makes cash payments at fixed rates in exchange for floating rate payments that fluctuate with one and three month LIBOR. The Fund's interest rate swap agreements will generally increase in value when interest rates rise and decrease in value when interest rates fall. In the future, the Fund may use other interest rate hedging arrangements (such as caps, floors and collars) to fix or limit borrowing costs. The use of interest rate hedging arrangements is a specialized activity that can expose the Fund to significant loss. The following table summarizes the contractual maturities and weighted-average interest rates associated with the Fund's significant non-trading financial instruments. The Fund has no market risk sensitive instruments held for trading purposes. This information should be read in conjunction with Note 5 and Note 6 to the Fund's unaudited condensed consolidated financial statements in Item 1 above. Interest Rate Sensitivity Cost, Principal (Notional) Amount by Contractual Maturity and Callable Date for the Twelve Months Ended June 30,*

* The amounts listed reflect the Fund's positions as of June 30, 2004. The Fund's current positions may differ. ** The terms disclosed are those of the interest rate swap agreements that are in effect as of June 30, 2004. As discussed in Note 5 to the Fund's unaudited condensed consolidated financial statements in Item 1 above, during July 2004 certain interest rate swap agreements were terminated, resulting in a change of the average pay rate and average receive rate to 4.53% and 1.57%, respectively. 1 On July 28, 2004, the coupon rate reset to 7.875%. 2 Belmar Realty's interest in these Partnership Preference Units is held through Bel Holdings LLC. ITEM 4. CONTROLS AND PROCEDURES. Eaton Vance, as the Fund's manager, conducted an evaluation of the effectiveness of the Fund's disclosure controls and procedures (as defined by Rule 13a-15(e) of the 1934 Act) as of the end of the period covered by this report, with the participation of the Fund's Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Fund's disclosure controls and procedures were effective. There were no changes in the Fund's internal control over financial reporting that occurred during the quarter ended June 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Fund's internal control over financial reporting. As the Fund's manager, the complete and entire management, control and operation of the Fund are vested in Eaton Vance. The Fund's Chief Executive Officer and Chief Financial Officer intend to report to the Board of Directors of Eaton Vance, Inc. (the sole trustee of Eaton Vance) any significant deficiency in the design or operation of internal control over financial reporting which could adversely affect the Fund's ability to record, process, summarize and report financial data, and any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Although in the ordinary course of business, the Fund, Belmar Realty and Belmar Realty's controlled subsidiaries may become involved in legal proceedings, the Fund is not aware of any material pending legal proceedings to which any of them is subject. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES. As described in the Fund's Annual Report on Form 10-K for the year ended December 31, 2003, shares of the Fund may be redeemed by Fund shareholders on any business day. Redemptions are met at the net asset value per share of the Fund. The right to redeem is available to all shareholders and all outstanding Fund shares are eligible (except for Shares subject to an estate freeze election as described in Item 5 of the Fund's Report on Form 10-K for the fiscal year ending December 31, 2003). During each month in the quarter ended June 30, 2004, 26 the total number of shares redeemed and the average price paid per share were as follows: Total No. of Shares Average Price Paid Month Ended Redeemed(1) Per Share ---------------------------------------------------------------- April 30, 2004 101,591.51 $86.74 ---------------------------------------------------------------- May 31, 2004 199,822.67 $85.78 ---------------------------------------------------------------- June 30, 2004 64,908.41 $88.24 ---------------------------------------------------------------- Total 366,322.59 $87.74 ---------------------------------------------------------------- (1) All shares redeemed during the periods were redeemed at the option of shareholders pursuant to the Fund's redemption policy. The Fund has not announced any plans or programs to repurchase shares other than at the option of shareholders. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the three months ended June 30, 2004. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) The following is a list of all exhibits filed as part of this Form 10-Q: 4.2(a) Form of Amendment No. 1 dated August 3, 2004 to Loan and Security Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., as Agent, the Lenders referred to therein and Merrill Lynch Capital Services, Inc. 31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K: None. 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized officer on August 9, 2004. BELMAR CAPITAL FUND LLC /s/ Michelle A. Alexander ------------------------- Michelle A. Alexander Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 28 EXHIBIT INDEX ------------- 4.2(a) Form of Amendment No. 1 dated August 3, 2004 to Loan and Security Agreement among the Fund, Merrill Lynch Mortgage Capital, Inc., as Agent, the Lenders referred to therein and Merrill Lynch Capital Services, Inc. 31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 29

BELMAR CAPITAL FUND LLC 10-Q